{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-the-seller-requires-a-security-interest-how-does-it-affect-the-standby-status-of-their-","api_url":"https://dealroom.so/api/public/questions/if-the-seller-requires-a-security-interest-how-does-it-affect-the-standby-status-of-their-","question":"If the seller requires a security interest, how does it affect the standby status of their note?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller's security interest will typically prevent their note from being considered on 'full standby' because it grants them rights over the business assets, potentially ahead of the SBA lender.","rule":"For a seller note to be on 'full standby' and count towards the equity injection, it must be subordinate to the SBA loan in all respects, including collateral. A security interest gives the seller a claim on assets, which conflicts with the SBA's requirement for the lender to have a first lien position on all available business collateral.","example":"A buyer and seller agree to a $100,000 seller note. The seller insists on a second lien position on the business's equipment. This security interest would mean the note does not qualify as 'full standby' for the buyer's equity injection, requiring the buyer to find other funds.","what_lenders_check":"Lenders strictly ensure the seller note is fully subordinate to the SBA loan, especially concerning collateral. Any security interest for the seller would compromise the lender's first lien position and negate the standby status.","required_facts":["Seller note","Security interest","Full standby","Subordination","Collateral priority","SBA lien position"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?","url":"https://dealroom.so/sba-7a/questions/if-a-seller-takes-a-fully-subordinated-note-can-they-remain-an-employee-or-consultant-afte"},{"question":"For a $900,000 business acquisition, what percentage of the total required equity injection can come from a fully subordinated seller note?","url":"https://dealroom.so/sba-7a/questions/for-a-900-000-business-acquisition-what-percentage-of-the-total-required-equity-injection-"},{"question":"Can a seller who takes a fully subordinated note also remain an employee or consultant of the business after the acquisition?","url":"https://dealroom.so/sba-7a/questions/can-a-seller-who-takes-a-fully-subordinated-note-also-remain-an-employee-or-consultant-of-"},{"question":"How does an earn-out provision affect an SBA 7(a) loan for a business acquisition?","url":"https://dealroom.so/sba-7a/questions/how-does-an-earn-out-provision-affect-an-sba-7-a-loan-for-a-business-acquisition"},{"question":"What is the minimum term duration a seller note must be on full standby for an SBA loan?","url":"https://dealroom.so/sba-7a/questions/what-is-the-minimum-term-duration-a-seller-note-must-be-on-full-standby-for-an-sba-loan"},{"question":"Can interest be accrued and paid on a seller note while it is on full standby?","url":"https://dealroom.so/sba-7a/questions/can-interest-be-accrued-and-paid-on-a-seller-note-while-it-is-on-full-standby"}],"related_terms":[{"term":"Assignment of the Security Interest","url":"https://dealroom.so/glossary/assignment-of-the-security-interest"},{"term":"Perfect a security interest","url":"https://dealroom.so/glossary/perfect-a-security-interest"},{"term":"Security Interest","url":"https://dealroom.so/glossary/security-interest"},{"term":"Full Standby Status","url":"https://dealroom.so/glossary/full-standby-status"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Seller standby agreement","url":"https://dealroom.so/glossary/seller-standby-agreement"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/if-the-seller-requires-a-security-interest-how-does-it-affect-the-standby-status-of-their-","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}